The Daily Shot And Data - July 15, 2016

Greetings,

1. We begin with China where the latest economic figures are for the most part stronger than forecast. The GDP, industrial production, the money supply growth and credit expansion all came in above expectations.

Source: Investing.com

US futures jumped on the data release from China.

The charts below show year-over-year growth in retail sales and industrial production - both have stabilized.

Improvements in China's nominal GDP growth (white line below) should ease the debt-to-GDP ratios, allowing the nation to "grow into" its debt. Perhaps.

Source: ‏@TomOrlik

2. One metric from China that missed forecasts was the fixed asset investment growth.

Public (orange) and private (white) sector investment trends continue to diverge, with the government still driving growth.

Source: ‏@TomOrlik

The decline in investment seems to be concentrated in the nation's northeast region.

Source: ‏@rafferty_tom, The Economist

3. According to the WSJ: "China buys foreign sports franchises, movie studios to keep up with the wish lists of its growing consumer class". Outbound M&A spikes in 2016. Some analysts suspect that at least a portion of this is related to concerns about the renminbi weakness and the need for a legal way to move money abroad.

Source: @WSJ

4. China's strikes and protest numbers rise 20% in the first half of this year as wage growth and hiring slows.

Source: ‏@FT

5. Speculative activity in certain commodity futures on China's exchanges persists. The volume in cotton futures, for example, remains highly elevated relative to last year as prices spike.

Source: @barchart

1. In other emerging markets, here is the South African rand, the Russian ruble, and the Turkish lira vs. the US dollar over the past month. The Turkish lira is still below its pre-Brexit levels.

Source: @barchart

2. Similarly, while Eastern European currencies recovered from the EU referendum shock, the Polish zloty is lagging.

Source: @barchart

Source: @markets

2. The Brazil 10y government bond yield fell below 12%, and the Turkish yield dropped below 9% - for the first time since early 2015. EM bond demand remains high as foreigners search for yield.

3. Brazil's GDP tracker continues to decline, missing expectations. Terrible.

4. Russia is gradually rebuilding the FX reserves.

5. India's wholesale prices were up 1.62% y/y in June, with food prices rising 8% on the year. The disinflationary pressures are over.

6. Argentina's stock market is approaching a record high (in peso).

Dollar-yen is approaching its pre-Brexit level, moving above 106. Markets are betting on BoJ's shock and awe. Will they be disappointed?

Source: @barchart

Separately, here we go again with Nintendo.

Source: Google

1. Turning to the UK, the Bank of England left rates unchanged but seems to be promising some easing action in August. The central bank expects weaker growth and higher inflation in the post-Brexit environment. Here is a quote from the BoE statement.

Source: BoE

2. With a rate cut expected in August, the market response was fairly muted.

3. The British pound continues to grind higher.

Source: @barchart

4. The British pound volatility index is still elevated, but options bets are gradually coming off.

5. This next chart shows market-based UK overnight rate expectations (forward curve) over time. It took a while to get the full "capitulation". Is the weakness in rate expectations overdone now?

Source: @MattWhittakerRF

6. The UK housing survey looks hideous - here are some charts pointing to a significant adjustment in the market ("new vendor instructions" is roughly a measure of new home sales in the process of closing).

Source: RICS

Turning to the Eurozone, our thoughts and prayers go to the victims and their families in Nice, France. A senseless tragedy indeed.

1. The chart below is Goldman's model projection for the Eurozone GDP growth in Q2. It's clearly a reduction although the economy was still expanding. The big question will be Q3.

2. Italian house price index continues to fall. This trend is one of the factors pressuring the banking system.

3. Nonetheless, European bank shares bounced on the JPM earnings beat and broad risk-on sentiment.

Source: Investing.com

4. Irish inflation rises to a 22-month high as deflationary pressures abate.

1. Switching to Canada, the BoC stands pat again despite worries about Brexit. The loonie is up sharply over the past 3 days.

Source: @barchart

2. Here is Canada's new house price index - the largest jump since 2007. Nothing to see here, it's all good.

3. Some analysts are suggesting that Canadian house price increases will accelerate further as Brexit forces borrowing costs to stay low.

Source: @business

4. The Canadian stock market has outperformed sharply this year, albeit from depressed levels.

Source: Ycharts.com

Stronger Canadian dollar sends lumber futures higher

Source: @barchart

1. Now on to the United States where treasuries have corrected sharply over the past few days. Here are the 10y treasury futures over the past week.

Source: @barchart

2. US 2016 rate hike probability is approaching pre-Brexit levels. The chart below shows the Jan Fed Funds futures (lower price = higher implied rate).

Source: @barchart

Here is what the probability distribution looks like.

Source: CME

3. US producer prices posted the largest gain in a year, beating forecasts. If this trend continues, it will give the hawks on the FOMC quite a bit of ammunition for a rate hike.

4. Fed's Lockhart urges patience amid Brexit and economic uncertainty. However, he is still open to one or even two rate hikes this year.

Source: Reuters

5. The St. Louis Fed Financial Stress Index continues to decline, suggesting easier financial conditions in the US.

6. The US 15-year mortgage rate is the lowest since 2013 ("pre-tantrum").

7. RealtyTrac shows that spec buyers constitute the highest percentage of distressed purchases. Is the "Flip that House" mentality back?

Source: @business

1. Next, we look at credit, where according to LCD, "investors pour a whopping $4.35B into US HY funds this week - 2nd highest weekly inflow ever".

Source: @lcdnews, @mfuller2009

2. HY spreads continue to contract, with bonds outperforming many other asset classes. The Merrill "CCC and below" absolute return index is at the highest level in a year.